TY - JOUR
AU - Butaru, Florentin
AU - Chen, QingQing
AU - Clark, Brian
AU - Das, Sanmay
AU - Lo, Andrew W
AU - Siddique, Akhtar
TI - Risk and Risk Management in the Credit Card Industry
JF - National Bureau of Economic Research Working Paper Series
VL - No. 21305
PY - 2015
Y2 - June 2015
DO - 10.3386/w21305
UR - http://www.nber.org/papers/w21305
L1 - http://www.nber.org/papers/w21305.pdf
N1 - Author contact info:
Florentin Butaru
U.S. Department of the Treasury
Office of the Comptroller of the Currency
E-Mail: Florentin.Butaru@occ.treas.gov
QingQing Chen
U.S. Department of the Treasury
Office of the Comptroller of the Currency
E-Mail: Qingqing.Chen@occ.treas.gov
Brian Clark
U.S. Department of the Treasury
Office of the Comptroller of the Currency
E-Mail: Brian.Clark@occ.treas.gov
Sanmay Das
Washington University
SEAS
E-Mail: sanmay@seas.wustl.edu
Andrew W. Lo
MIT Sloan School of Management
100 Main Street, E62-618
Cambridge, MA 02142
Tel: 617/253-0920
Fax: 781/891-9783
E-Mail: alo-admin@mit.edu
Akhtar Siddique
U.S. Department of the Treasury
Office of the Comptroller of the Currency
E-Mail: Akhtarur.Siddique@occ.treas.gov
AB - Using account level credit-card data from six major commercial banks from January 2009 to December 2013, we apply machine-learning techniques to combined consumer-tradeline, credit-bureau, and macroeconomic variables to predict delinquency. In addition to providing accurate measures of loss probabilities and credit risk, our models can also be used to analyze and compare risk management practices and the drivers of delinquency across the banks. We find substantial heterogeneity in risk factors, sensitivities, and predictability of delinquency across banks, implying that no single model applies to all six institutions. We measure the efficacy of a bank’s risk-management process by the percentage of delinquent accounts that a bank manages effectively, and find that efficacy also varies widely across institutions. These results suggest the need for a more customized approached to the supervision and regulation of financial institutions, in which capital ratios, loss reserves, and other parameters are specified individually for each institution according to its credit-risk model exposures and forecasts.
ER -